New fund in London taps China onshore stock market

HONG KONG Thu Jan 9, 2014 5:47am EST

HONG KONG Jan 9 (Reuters) - Chinese asset management firm CSOP and London-based Source announced on Thursday the launch of the first renminbi qualified foreign institutional investor (RQFII) exchange traded fund (ETF) listed in London, expanding channels foreign investors access China's domestic capital markets.

Offshore ETFs focused on the A-share market are among the few options for foreigners to access mainland markets and they have become popular in recent months because of anaemic growth prospects in the West and a recovering Chinese economy.

The fund, available to retail and institutional investors across Europe, will track FTSE China A50 Index to allow investors to have exposure to the top 50 companies in mainland China.

As a result of strong demand for the fund, initial orders of 1.42 billion yuan ($234.66 million) were received on January 3, CSOP said. The total quota granted to the fund is 1.5 billion yuan.

"The launch of this RQFII ETF on the London Stock Exchange underlines the UK's position as the western centre for offshore RMB, and the UK's position as a global centre for asset management," Sajid Javid, UK Financial Secretary to the Treasury said in a statement.

The RQFII scheme, launched in 2011, allows financial institutions to use offshore RMB to invest in the Chinese mainland securities markets, including stocks, bonds, and money market instruments.

ETFs offered under RQFII is preferred more by investors than those launched under its older cousin - the Qualified Foreign Institutional Investor (QFII) - started in 2002.

That is because the RQFII ETFs invest in all constituent stocks with the same weight as those in the benchmark, compared with the QFII ETFs, which use derivatives to gain exposure and thus have higher counterparty risk and tracking error.

Chinese asset manager Harvest Global Investments partnered with Deutsche Asset & Wealth Management to list the first exchange-traded fund (ETF) in the United States in December. The two firms are also considering a similar fund to be listed in Europe.

As of Dec. 25, a total of 157.5 billion yuan quota had been approved under 52 RQFII licences, according to statistics from China's State Administration of Foreign Exchange (SAFE).